Britannia Industries Ltd

Transcription

1 Britannia Industries Ltd PhillipCapital (India) Pvt. Ltd. FMCG: Quarterly Update 12 November 213 Britannia industries reported a stellar quarter led by continued gross margin improvement and cost savings translating to an earnings growth of 65% YoY and 9.1% QoQ to Rs 977mn. The company s standalone reported EBIDTA margins reached a 22 quarter high of 9.6% primarily driven by gross margin expansion of 38bps YoY. We find Britannia in a resurgence mode but margin expansion from the current levels is likely to be limited. We maintain our Buy rating on the stock and value the company at 25x FY15E earnings at Rs 15. Revenue growth at 13% YoY; estimate volume growth of ~6%: We estimate the volume growth for the quarter at ~6% YoY. The volume growth was stable on a sequential basis. We estimate the pricing growth at 8% YoY of which ~2% YoY is on account of product mix improvement. We estimate that Britannia has consistently been improving realizations in the past few quarters with favourable change in product mix. We observe that while discretionary spends have decelerated across categories in the consumer sector, the premiumisation trends in the Biscuit category continue to hold. We expect domestic biscuit volume growth at 6% YoY and ~8% YoY for FY14E and FY15E respectively. We estimate domestic pricing growth at ~8% YoY and ~6% in FY14E and FY15E respectively. Gross margin expansion higher than expected expansion at 38 bps YoY: Gross margin expansion was significantly ahead of estimates implying the improving product mix is translating to margin benefits. The gross margins in standalone (domestic business) also expanded by 38bps to 39.4%. The consolidated gross profit growth for the quarter was 25% YoY and 1% QoQ. The gross margin expansion has been significant notwithstanding rising inflation in wheat and vegetable oil. Sugar prices have been soft on account of the high base effect. We attribute the improvement in gross margin to price hikes and product mix improvement. Consolidated EBITDA margins report sharp expansion of 32 bps YoY to 9.2% driven by gross margin: The improvement in standalone EBIDTA margins was much more significant at 43bps YoY and 4bps QoQ. The improvement in standalone EBIDTA margins was helped by gross margin expansion of 38bps YoY and operating leverage benefits on other operating expenses which declined by 3bps YoY as a % of sales. Advertising expenses for standalone business declined as a % of sales by 2bps while increased by 3bps YoY in the consolidated business. We note the pace of improvement in gross margin and EBIDTA margin improvement has been significantly higher than expectations but we believe further improvements from the current levels will be limited. Revision of estimates and target price, Maintain BUY recommendation: We have revised our earnings estimates upwards by 7% and 9% for FY14E and FY15E. The stock currently trades at 27x FY14E, a significant discount to the sector valuations of 32x. We value the stock at 25x FY15E consolidated EPS with a revised target price of Rs. 15 (earlier Rs. 9). Considering the strong upside on 2% from current levels, Britannia is one of the top picks in our FMCG universe coverage. BUY BRIT IN CMP RS 877 TARGET RS 15 (+2%) Company Data O/S SHARES (MN) : 12 MARKET CAP (RSBN) : 84 MARKET CAP (USDBN) : 1 52 WK HI/LO (RS) : 973 / 4 LIQUIDITY 3M (USDMN) :.8 FACE VALUE (RS) : 2 Share Holding Pattern, % PROMOTERS : 5.9 FII / NRI : 19.5 FI / MF : 9.9 NON PROMOTER CORP. HOLDINGS : 2.2 PUBLIC & OTHERS : 17.6 Price Performance, % 1mth 3mth 1yr ABS REL TO BSE Price Vs. Sensex (Rebased values) Apr 1 May 11 Jun 12 Jul 13 Briitannia BSE Sensex Source: Bloomberg, Phillip Capital Research c Other Key Ratios Rs mn FY13 FY14E FY15E Net Sales 61,359 69,892 8,179 EBIDTA 3,711 5,969 7,137 Net Profit 2,597 3,95 5,11 EPS, Rs PER, x EV/EBIDTA, x P/BV, x ROE, % Total debt/equity (%) Source: PhillipCapital India Research Est. Naveen Kulkarni, CFA, FRM ( ) nkulkarni@phillipcapital.in Ennette Fernandes ( ) efernandes@phillipcapital.in Please refer to Disclosures and Disclaimers at the end of the Research Report.

2 Quarterly Results (Standalone) (Rs mn) Q2FY14 Q1FY14 QoQ, % Q2FY13 YoY, % Net sales 15,945 14, , Growth, % Total income 16,1 14, , Gross Profit 6,278 5, , Gross Margin % Advertising Expenses 1,314 1, , Ad to Sales Ratio % Operating expenses 3,433 3, , as % of Sales EBITDA Growth, % Margin, % Depreciation EBIT 1,376 1, Margin, % Interest paid Other Non Operating Income Adjusted PBT 1,48 1, Exceptionals Tax provided Adjusted PAT Reported PAT Growth, % Margin, % Adj Fully Dilluted EPS, Rs Source: Company, PhillipCapital India Research Quarterly Results (Consolidated) (Rs mn) Q2FY14 Q1FY14 QoQ, % Q2FY13 YoY, % Net sales 17,45 15, , Growth, % 12.8 Total income 17,558 15, , Gross Profit 6,895 6, , Gross Margin % Advertising Expenses 1,551 1, , Ad to Sales Ratio % Operating expenses 3,735 3, , as % of Sales EBITDA Growth, % 72.9 Margin, % Depreciation EBIT 1,398 1, Margin, % Interest paid Other Non Operating Income Adjusted PBT 1,429 1, Exceptionals Tax provided Adjusted PAT Reported PAT Growth, % 65.6 Margin, % Adj Fully Dilluted EPS, Rs Source: Company, PhillipCapital India Research 2 of 8

3 Key operating performance charts (Standalone) Revision of estimates (Consolidated) (Rs mn) Earlier estimates Revised estimates Upgrade/(downgrade) (%) FY14E FY15E FY14E FY15E FY14E FY15E Net Sales 7,68 81,194 69,892 8, % 1.3% EBITDA 5,62 6,123 5,969 7, % 16.6% EBITDA margin (%) PBT 5,26 6,519 5,74 7,21 8.4% 1.6% Adj PAT 3,695 4,596 3,95 5,11 6.9% 9.% Adj PAT margin (%) Adj EPS (Rs) % 8.9% Source: PhillipCapital India Research Estimates Q1FY11 Q2FY11 Q1FY11 Q2FY11 Net sales / Income from operations margin (%) Q4FY11 Q1FY12 Q3FY12 Q4FY12 Gross Profit Margin (%) Source: Company, PhillipCapital India Research Q2FY13 Q3FY13 Q1FY14 Q2FY Q4FY11 Q1FY12 Q3FY12 Q4FY12 Q2FY13 Q3FY Q1FY14 Q2FY Advertising & Publicity (% of net sales) Q4FY1 Q1FY11 Q2FY11 Q4FY11 Q1FY12 Q3FY12 Q4FY12 Q2FY13 Q3FY13 Q1FY14 Q2FY14 EBITDA margin (%) Q4FY1 Q1FY11 Q2FY11 Q4FY11 Q1FY12 Q3FY12 Q4FY12 Q2FY13 Q3FY13 Q1FY14 Q2FY14 3 of 8

4 Key input inflation charts 12 HDPE (Rs./kg) 1,8 Wheat (Rs./Quintal) 4 Sugar (INR/Kg) ,6 1,4 1,2 1, Q4FY7 Q3FY8 Q2FY9 Q1FY1 Q4FY1 Q4FY7 Q3FY8 Q2FY9 Q1FY1 Q4FY1 Nestle Q4FY7 Q3FY8 Q2FY9 Q1FY1 Q4FY1 Source: Company, PhillipCapital India Research 4 of 8

5 Financials (Consolidated) Income Statement Y/E Mar, Rs mn FY12 FY13E FY14E FY15E Net sales 54,68 61,359 69,892 8,179 Growth, % Total income 54,68 61,359 69,892 8,179 Raw material expenses 35,328 38,614 42,53 47,955 Employee expenses 2,112 2,268 2,77 3,12 Other Operating expenses 14,36 16,767 19,1 21,984 EBITDA (Core) 2,863 3,711 5,969 7,137 Growth, % Margin, % Depreciation EBIT 2,244 2,978 5,113 6,178 Growth, % Margin, % Interest paid Other Non Operating Income 838 1, ,147 Pre tax profit 2,666 3,582 5,74 7,21 Tax provided ,754 2,199 Profit after tax 1,997 2,597 3,95 5,11 Net Profit 1,997 2,597 3,95 5,11 Growth, % Net Profit (adjusted) 1,997 2,597 3,95 5,11 Unadj. shares (m) Wtd avg shares (m) Balance Sheet Y/E Mar, Rs mn FY12 FY13E FY14E FY15E Cash & bank 68 1, ,754 Debtors 1,13 1,228 1,3 1,424 Inventory 4,318 3,747 3,857 4,485 Loans & advances 2,397 2,786 3,75 3,48 Other current assets Total current assets 8,574 8,912 8,463 13,193 Investments 2,485 1,82 1,82 1,82 Gross fixed assets 12,155 13,885 15,635 17,135 Less: Depreciation 5,912 6,517 7,374 8,334 Add: Capital WIP 1,113 1,473 1,473 1,473 Net fixed assets 7,356 8,84 9,734 1,274 Non current assets Total assets 18,419 18,834 19,312 24,583 Current liabilities 7,984 9,19 8,351 11,381 Total current liabilities 7,984 9,19 8,351 11,381 Non current liabilities 6,323 4,123 3,181 2,681 Total liabilities 14,37 13,232 11,533 14,62 Paid up capital Reserves & surplus 3,853 5,339 7,519 1,259 Shareholders equity 4,113 5,6 7,78 1,521 Total equity & liabilities 18,419 18,834 19,312 24,583 Source: Company, PhillipCapital India Research Estimates Cash Flow Y/E Mar, Rs mn FY12 FY13E FY14E FY15E Pre tax profit 2,666 3,582 5,74 7,21 Depreciation Chg in working capital 123 1,214 1,263 1,945 Total tax paid ,754 2,199 Cash flow from operating activities 2,511 4,595 3,544 7,915 Capital expenditure 2,799 2,218 1,75 1,5 Chg in investments 1,4 1,43 Cash flow from investing activities 1, ,75 1,5 Free cash flow 1,112 3,781 1,795 6,415 Equity raised/(repaid) 831 1,487 2,18 2,74 Debt raised/(repaid) 18 2, Dividend (incl. tax) 1,18 1,182 1,85 2,27 Cash flow from financing activities 456 1, Net chg in cash 656 1,834 1,228 6,385 Valuation Ratios & Per Share Data FY12 FY13E FY14E FY15E Per Share data EPS (INR) Growth, % Book NAV/share (INR) FDEPS (INR) CEPS (INR) CFPS (INR) DPS (INR) Return ratios Return on assets (%) Return on equity (%) Return on capital employed (%) Turnover ratios Asset turnover (x) Sales/Total assets (x) Sales/Net FA (x) Working capital days (.1) (7.3). (8.8) Liquidity ratios Current ratio (x) Quick ratio (x) Interest cover (x) Dividend cover (x) Total debt/equity (%) Net debt/equity (%) (11.4) Valuation PER (x) PEG (x) y o y growth Price/Book (x) Yield (%) EV/Net sales (x) EV/EBITDA (x) EV/EBIT (x) of 8

6 Recommendation History 1 8 B (TP 9) B (TP 9) 6 B (TP 71) B (TP 635) 4 1/1/2132/5/2133/12/2134/18/2135/27/2137/1/2138/5/2139/12/213 1/21/213 Source: PhillipCapital India Research 6 of 8

7 Management Vineet Bhatnagar (Managing Director) (91 22) Jignesh Shah (Head Equity Derivatives) (91 22) Research Automobiles Deepak Jain (9122) Banking, NBFCs Manish Agarwalla (9122) Sachit Motwani, CFA, FRM (9122) Consumer, Media, Telecom Naveen Kulkarni, CFA, FRM (9122) Ennette Fernandes (9122) Vivekanand Subbaraman (9122) Cement Vaibhav Agarwal (9122) Economics Anjali Verma (9122) Sales & Distribution Kinshuk Tiwari (9122) Ashvin Patil (9122) Shubhangi Agrawal (9122) Kishor Binwal (9122) Sidharth Agrawal (9122) Dipesh Sohani (9122) Engineering, Capital Goods Ankur Sharma (9122) Infrastructure & IT Services Vibhor Singhal (9122) Varun Vijayan (9122) Metals Dhawal Doshi (9122) Dharmesh Shah (9122) Mid caps Kapil Bagaria (9122) Oil&Gas, Agri Inputs Gauri Anand (9122) Deepak Pareek (9122) Saurabh Rathi (9122) Dilesh Doshi (Sales Trader) (9122) Suniil Pandit (Sales Trader) (9122) Rajesh Ashar (Sales Trader) (9122) Pharma Surya Patra (9122) Retail, Real Estate Abhishek Ranganathan, CFA (9122) Neha Garg (9122) Quant Shikha Khurana (9122) Sr. Manager Equities Support Rosie Ferns (9122) Mayur Shah (Execution) (9122) Contact Information (Regional Member Companies) SINGAPORE Phillip Securities Pte Ltd 25 North Bridge Road, #6 Raffles City Tower, Singapore Tel : (65) Fax: (65) JAPAN Phillip Securities Japan, Ltd 4 2 Nihonbashi Kabutocho, Chuo ku Tokyo Tel: (81) Fax: (81) THAILAND Phillip Securities (Thailand) Public Co. Ltd. 15th Floor, Vorawat Building, 849 Silom Road, Silom, Bangrak, Bangkok 15 Thailand Tel (66) Fax: (66) UNITED STATES Phillip Futures Inc. 141 W Jackson Blvd Ste 35 The Chicago Board of Trade Building Chicago, IL 664 USA Tel (1) Fax: (1) MALAYSIA Phillip Capital Management Sdn Bhd B 3 6 Block B Level 3, Megan Avenue II, No. 12, Jalan Yap Kwan Seng, 545 Kuala Lumpur Tel (6) Fax (6) INDONESIA PT Phillip Securities Indonesia ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A, Jakarta 122, Indonesia Tel (62) Fax: (62) FRANCE King & Shaxson Capital Ltd. 3rd Floor, 35 Rue de la Bienfaisance 758 Paris France Tel (33) Fax : (33) AUSTRALIA PhillipCapital Australia Level 37, 53 Collins Street Melbourne, Victoria 3, Australia Tel: (61) Fax: (61) INDIA PhillipCapital (India) Private Limited No. 1, C Block, 2 nd Floor, Modern Center, Jacob Circle, K. K. Marg, Mahalaxmi Mumbai 411 Tel: (9122) Fax: (9122) HONG KONG Phillip Securities (HK) Ltd 11/F United Centre 95 Queensway Hong Kong Tel (852) Fax: (852) CHINA Phillip Financial Advisory (Shanghai) Co. Ltd. No 55 Yan An East Road, Ocean Tower Unit 2318 Shanghai 2 1 Tel (86) Fax: (86) UNITED KINGDOM King & Shaxson Ltd. 6th Floor, Candlewick House, 12 Cannon Street London, EC4N 6AS Tel (44) Fax: (44) SRI LANKA Asha Phillip Securities Limited Level 4, Millennium House, 46/58 Navam Mawatha, Colombo 2, Sri Lanka Tel: (94) Fax: (94) of 8

8 Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may or may not match or may be contrary at times with the views, estimates, rating, target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd. This report is issued by PhillipCapital (India) Pvt. Ltd. which is regulated by SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. 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